Deadlock is Often the Ultimate Demise of Good Business

Consider this common scenario.

You’ve entered into business with your spouse, friend, or relative. At the inception of your business, you agreed that both of you would serve as the directors or managers of the Company, and you would be equal partners, each allocated fifty percent (50%) of the shares or ownership interest in the Company. Your relationship with your partner is healthy; you trust them; you trust their judgment; you’re excited about your idea, about your business. And life is great until…….

….. You have your first real dispute. The one that does not solve itself nor does it resolve with a drink at the bar.

As the business develops, you’re faced with decisions about the future direction of the business, about major business activities. Eventually, there may be a decision on which you simply cannot agree. And because you have equal control of the Company, your conflicting views ultimately stalemate or deadlock the business until you come to some agreement or decision.

Unfortunately, more often than not, people in this common scenario do not properly plan for or consider the potential for corporate deadlock, and it can lead, not only to the deterioration of a personal relationship, but also a business relationship and a business.

 HOW TO RESOLVE CORPORATE DEADLOCK

Planning for the Future.

The best way to avoid corporate deadlock is to plan ahead.  This should be a major consideration when you enter into a business relationship with anyone.  Sit down with your partner and discuss setting up a procedure for what happens if a deadlock arises.  It may not be an easy conversation to have – it may be difficult to imagine disagreeing with your partner. But sit down with your partner early and really consider the following things: (i) the nature of the business; (ii) your business plan; (iii) you and your partner’s individual ideas of the direction of the business; (iv) what problems that could arise in the business, financial or otherwise; (v) each person’s individual skill set. All these things can play a role in your deadlock discussion and the most appropriate procedure for resolving a potential deadlock. These frank conversations are even more important when one party is providing the money and the other is providing sweat equity.

Shareholders’ Agreements and Operating Agreements.

We find a lot of times that people who enter into business with a family member or close friend don’t even have a Shareholders’ Agreement or an Operating Agreement. This might be for a variety of reasons – they didn’t plan for initial legal costs and fees; they feel that they will be able to run the business through oral agreements and understandings; or, they find it uncomfortable to discuss the issues found in corporate governance documents, like transfer upon death, disability, divorce, debt, dissolution, or simply the desire of one partner to monetize and be paid out etc.

We recommend to all our clients, regardless of relationship between partners, shareholders, or members (even husband and wife), that they have some form of Shareholders’ Agreement or Operating Agreement in place establishing the governance of the entity, the rights, duties and obligations of the parties, including, if necessary, provisions addressing potential deadlock scenarios in management or between members or shareholders.

Alternative Provisions.

There are a number of different ways that an entity can resolve deadlock, and, in fact, it may be beneficial to a Company to implement multiple or hybrid deadlock methods. These methods can easily be incorporated into a Company’s governance documentation. Here are a few ways to resolve deadlock:

  1. Create a third party advisory board – either with other Members or Shareholders of the Company, or even an outside third party knowledgeable in the business and/or decision subject to deadlock;
  1. Consider implementing automatic mediation or arbitration – this may not be feasible for all companies or for all deadlocked scenarios – it can be costly and time consuming – but it can be quite effective in preventing dissolution when there is a deadlock for a major decision;
  1. Consider splitting or designating certain decisions to each partner – for examples, this partner has the ultimate decision making authority on banking and property, and the other partner has the ultimate decision making on sales and marketing – this method requires the partners to determine strengths and weaknesses and delineate accordingly – this method is useful when doing some form of hybrid deadlock provision;
  1. Consider a buy-out provision – if the partners cannot agree, one partner can buy the other partner’s shares or membership interest – there are a number of ways to structure a buy-out provision;
  1. If nothing else works, provide for a definitive right to withdraw or force dissolution or liquidation without court intervention. In this instance, you may be left relying on the default solutions contained in the Florida Statutes [Sections 605 and 607] or the decision of a judge who is unfamiliar with your business.

Need help in putting in place a shareholders’ agreement or an operating agreement?

Need help revising your current agreement with some alternative deadlock provisions?

The Walk Law Firm is available to review your current Shareholders’ Agreement or Operating Agreement in order to help you determine if, in fact, it’s appropriate for you and your partner(s).  Document review and drafting can be handled on a Flat Fee or Fixed Fee basis. To learn more, please contact us at the Walk Law Firm.

 

Is It Safe Send an Email to Canada after the New Canadian Law on Marketing and Solicitation Email?

It sounds like a silly question: Is it safe to send email to businesses and friends in Canada? You may have a friend or a business colleague and  communicating one to one with that friend is no problem at all. But if you are sending bulk emails to Canadian contacts, list serves, clients and prospective clients you need to be aware that Canada passed a law that could result in large fines for your business.  You may still want to inform your clients of new services or products that your business offers and you may still want to send emails to prospective clients, but now you need to beware that it needs to be done right you you may be fined.

Did Canada really pass a law that impacts businesses who send email to Canadian citizens and businesses? The answer is yes, Canada did pass a law, commonly referred to as the Canadian Anti-Spam Law (the title of the law would take up more than 5 lines of text, so we will refer to it as the “Law”) that creates a risk of a fine for any business or individual that sends an email to a Canadian email address without consent.  The stated purpose of the Law is to reduce spam, spyware, and identity theft.  The stated purpose of the Law does not seem to seek to ensnare normal business email marketing, but the Law as written does seem to apply to virtually any email sent from a business or individual to a Canadian email address.  Therefore, it is completely uncertain how the authorities in Canada will treat even a minor violation.

You might ask, can I send an email to request the necessary consent to send additional emails?  The answer is, maybe.  If you don’t have express or implied consent, as defined in the Law, you would be in violation of Law for asking for consent.  Moreover, almost anything sent via telecommunication could fall under the Law, including email, text, instant messaging, and possibly telephone calls.

How large could the fine for violating the Law be?  The maximum penalty for a violation of the Law is $10 million for a business and $1 million for an individual.  There are transitional provisions that will be in effect for the first three years of the Law that could help soften the blow, but it’s unclear how the transitional provisions will be applied and there is no grace period during which the penalties do not apply.

What can I do to comply with the Law?  There are three steps to comply with the Law.  First, you’ll need either express or implied consent to send the email.  Second, you must identify yourself in the email.  Third, you’ll need to include an unsubscribe mechanism in each email you send.

There are a handful of exceptions where consent is not required to send an email.  For instance, there are exceptions for warranty and product recall emails and for emails that supply a quote which was requested by a customer.  The email still must include the identification, contact information, and the unsubscribe option.

What are a few steps to take to reduce the risk associated with the Law?  The first step is to start a database documenting any consent, express or implied, from clients and prospective clients with Canadian email addresses.  If you have any implied consents you may want to send a message requesting express consent because express consent is valid until revoked while implied consent is only valid for two years.

As the sender of emails, you will have the burden to show that you had consent to send the email.  Because the burden to prove consent rests with you we’d suggest keeping detailed records of express consents in writing, if possible, but an unedited audio recording of the express consent would suffice.  We would also suggest documenting the source of all implied consents.

Does the United States have a Similar Law? Yes and No. In 2003, President George Bush signed into law the CAN-SPAM Act of 2003. It applies to more than just email and the FTC website provides the following guidance on compliance with the law:

“Despite its name, the CAN-SPAM Act doesn’t apply just to bulk email. It covers all commercial messages, which the law defines as “any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service,” including email that promotes content on commercial websites. The law makes no exception for business-to-business email. That means all email – for example, a message to former customers announcing a new product line – must comply with the law.

Each separate email in violation of the CAN-SPAM Act is subject to penalties of up to $16,000, so non-compliance can be costly. But following the law isn’t complicated. Here’s a rundown of CAN-SPAM’s main requirements:

  1. Don’t use false or misleading header information. Your “From,” “To,” “Reply-To,” and routing information – including the originating domain name and email address – must be accurate and identify the person or business who initiated the message.
  2. Don’t use deceptive subject lines. The subject line must accurately reflect the content of the message.
  3. Identify the message as an ad. The law gives you a lot of leeway in how to do this, but you must disclose clearly and conspicuously that your message is an advertisement.
  4. Tell recipients where you’re located. Your message must include your valid physical postal address. This can be your current street address, a post office box you’ve registered with the U.S. Postal Service, or a private mailbox you’ve registered with a commercial mail receiving agency established under Postal Service regulations.
  5. Tell recipients how to opt out of receiving future email from you. Your message must include a clear and conspicuous explanation of how the recipient can opt out of getting email from you in the future. Craft the notice in a way that’s easy for an ordinary person to recognize, read, and understand. Creative use of type size, color, and location can improve clarity. Give a return email address or another easy Internet-based way to allow people to communicate their choice to you. You may create a menu to allow a recipient to opt out of certain types of messages, but you must include the option to stop all commercial messages from you. Make sure your spam filter doesn’t block these opt-out requests.
  6. Honor opt-out requests promptly. Any opt-out mechanism you offer must be able to process opt-out requests for at least 30 days after you send your message. You must honor a recipient’s opt-out request within 10 business days. You can’t charge a fee, require the recipient to give you any personally identifying information beyond an email address, or make the recipient take any step other than sending a reply email or visiting a single page on an Internet website as a condition for honoring an opt-out request. Once people have told you they don’t want to receive more messages from you, you can’t sell or transfer their email addresses, even in the form of a mailing list. The only exception is that you may transfer the addresses to a company you’ve hired to help you comply with the CAN-SPAM Act.
  7. Monitor what others are doing on your behalf. The law makes clear that even if you hire another company to handle your email marketing, you can’t contract away your legal responsibility to comply with the law. Both the company whose product is promoted in the message and the company that actually sends the message may be held legally responsible.” [http://www.business.ftc.gov/documents/bus61-can-spam-act-compliance-guide-business]

The Walk Law Firm is available to help businesses understand laws which apply to them when marketing their business, including the Canadian Anti-Spam Act and the US CAN SPAM Act of 2003.

The Walk Law Firm, PA and its attorneys are licensed in the States of Florida and Ohio only. We do not provide advice on the laws of Canada and this article is not intended as legal advice; rather, it was written for general information purposes only.

Is this Non-Compete Enforceable?

You’ve invested a lot in your business.  It’s becoming successful. You even have trade secrets and know-how that give you a leg-up on your competition. And you have personnel that you have invested time and money acquiring, training and maintaining.  Your confidential information and your personnel are major assets of your business and big reason for your success. As such, you require all employees and contractors to sign a non-compete or restrictive covenant agreement. But, is it enforceable, or are you just wasting time and energy with these agreements?

The enforceability of non-compete agreements (or restrictive covenant agreements) is determined by state law.  Florida has a fairly strong valid restraint on trade or commerce statute (Fla. Stat. Section 542.335).  According to Florida Statute, a non-compete agreement that restricts or prohibits competition during or after the term of employment or engagement is not prohibited, provided that the agreement is reasonable in duration, geography, and line of business.  So, what’s reasonable?

What is reasonable in duration?  For a former employee, agent, or independent contractor, a term of six (6) months or less is presumed reasonable and a term greater than two (2) years is presumed unreasonable.  However, both of these presumptions are rebuttable, which means that the other party can provide factual evidence to defeat the presumption of reasonableness or unreasonableness.  These numbers increase for persons that were distributors, dealers, sellers, and licensees; and they increase even higher for restrictive covenants predicated upon the protection of trade secrets.

What is a reasonable geographic scope?  The geographic scope should not be broader than is necessary to protect the legitimate business interests of the company. For some companies, the geographic scope might be limited to a five mile radius or a small town; whereas, for other larger companies, it might be reasonable to have a nationwide geographic scope.  This will be factually dependent upon the size of the business, the nature of the business, and the type of engagement the company has with the person.

What is a reasonable limitation for line of business?  The line of business prohibited in the non-compete should also not be broader than is necessary to protect the business. The agreement does not necessarily need to be limited to exactly what the employee does; but it does need to be narrowly defined.  For example, a sales person in a pharmaceutical sales company might have a non-compete that prohibits a former sales person from taking employment with a pharmaceutical manufacturing company or distributing company. In this example, it might not be enforceable to prevent or prohibit the former employee from gaining employment with any manufacturing or distributing company, but it might be enforceable to prevent or prohibit the former employee from working for or with specific manufacturing or distributing companies, especially ones with a close relationship.

In many cases, if the limitations relating to duration, geographic scope or line of business are not reasonable, a court will not modify the agreement to make it reasonable, it will simply void the agreement or make the agreement entirely unenforceable, so it is extremely important that you narrowly define these terms when you are drafting your non-compete.

In Florida, the non-compete must be in writing and it also must be signed for it to be enforceable. If the language is simply included in an outdated employee handbook, and it is never signed, a court will not enforce the agreement.

Also, you must have a legitimate reason, a legitimate business interest, in order for your non-compete to be enforceable.  According to Florida Statutes, the company seeking enforcement of the non-compete must be able to show that the non-compete was or is being used to protect one of the following legitimate business interests: to protect (1) trade secrets; (2) valuable confidential business or professional information that otherwise does not qualify as trade secrets; (3) substantial relationships between vendors, manufacturers, distributors, etc.; (4) customer, client or patient goodwill; (5) extraordinary or specialized training.

Any non-compete or restrictive covenant not supported by a legitimate business interest is UNLAWFUL and is VOID and UNENFORCEABLE, so it is extremely important that you have a good reason for using a non-compete agreement.

The Walk Law Firm is available to review your current non-compete agreement in order to help you determine if, in fact, it would be enforceable should you ever need to use it.  Document review and drafting can be handled on a Flat Fee or Fixed Fee basis. To learn more, please contact us at the Walk Law Firm.

This article is not intended as legal advice; rather, it was written for general information purposes only.

 

Florida Annual Report for LLC’s, Corporations and Partnerships due by May 1

Many of you have corporations and limited liability companies domiciled in Florida and other states. As you know, to keep those companies active, it is necessary in most states to file some variety of an annual report or franchise report. You will likely receive emails or mail to your principal address listed in the state records, but often it looks like junk mail that can be ignored, or is sometimes set aside and just simply forgotten. There are also companies that send very official looking letters offering to update your records for a fee. These updates are advertisements and may or may not include filing your state annual report. You can tell if they are advertisements by looking carefully at the fine print.

For those of you doing business in Florida, the Florida Department of State, Division of Corporations requires each organized business doing business in the state, whether a corporation, limited liability company, or partnership, whether domiciled or just licensed to do business in the state, to file an annual report between January 1st and May 1st of each year in order to maintain an active status in Florida. The annual report is used to confirm or update the Florida Department of State, Division of Corporation’s records, including information related to the managers, members, officers and directors, the registered agent or registered office, the principal address or mailing address, and the federal employer identification number. For other states, similar reports and fees will also be required. The timing varies and it is important to check the dates so that you do not miss important deadlines.

If the annual report is timely filed between January 1st and May 1st, the reporting fee is as follows: $150 for a profit corporation; $61.25 for a not for profit corporation; $138.75 for a limited liability company; and $500 for a limited partnership or limited liability limited partnership. A $400 late fee will be assessed for any report filed after May 1st for profit corporations, limited liability companies, limited partnerships and limited liability limited partnerships. Failure to file an annual report by the third (3rd) Friday of September will result in the administrative dissolution or revocation of the business entity on the records of the Florida Department of State.

In addition, the Florida LLC Act has been revised and restated in whole. Effective January 1, 2014, any new limited liability company formed will need to be formed pursuant to the new Act. Any existing entity will need to amend its operating agreement and articles to reflect the new Act no later than December 31, 2015. With that in mind, we are recommending to clients that the amendments be done now and that the Annual Report filing be made reflecting the new Act requirements, specifically, the elimination of the concept of Managing Member. We also recommend filing a Statement of authority recognizing those in your company authorized to act on behalf of the LLC. This may avoid the need to file additional amendments during the year.

We are ready and able to assist you in amending your operating agreements and answering questions regarding the new Act. We are also available to assist you in properly filing your annual report in Florida and assisting you with other states.

The annual for Florida report can be submitted electronically on Sunbiz.org. Annual reports filed using credit card, debit card or Sunbiz E-file Accounts through the E-Filing tab on Sunbiz.org are processed immediately and should be posted on Sunbiz.org within twenty-four (24) hours. Check and money order payments must be submitted by mail and are processed within twenty-one (21) days, so e-filing is the preferred method of filing. For Delaware companies, the annual reported can also be submitted by following this LINK.

The e-filing process is very simple and can be completed in minutes. An Overview and Step-by-step instructions for completing the annual report can be found HERE.

If you have any questions or concerns, please let us know and we would be happy to assist you with completing the annual report.

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Sweat Equity v. Money Investors: Who Makes the Rules? [The Golden Rule of Business]

Many years ago, while working as the General Counsel to a large public company going through a Chapter 11 Bankruptcy, I learned that the Golden Rule as we all learned it in kindergarten [do unto others as you would have other do unto you] is not the only Golden Rule when it comes to business. I certainly support and believe in the Golden Rule we learned in kindergarten and try my best to adhere to it, but when it comes to money and business, I have learned that the Golden Rule really is: the person with the gold makes the rules.

In business large and small, there is often reward and equity for those who have a great idea or are the work horses driving success (the “Sweat Equity Owner”). Typically, however, the greatest percentage of equity and, hence, the greatest return in pure dollars, goes to the person who put up the money in the first place (the “Cash Equity Owner”). Once the business gets going, this often leads to resentment of the Sweat Equity Owner and frustration of the Cash Equity Owner.

Not surprisingly, the Sweat Equity Owner often feels like he has worked harder and should be compensated for the hard work and ideas. In addition, the family of the Sweat Equity Owner has started to feel the pain of long hours and missed meals and events, resenting the Cash Equity Owner whose life and lifestyle has not changed at all.

The Cash Equity Owner is frustrated because the project is taking longer than expected to show a return and the Sweat Equity Owner continues to ask for cash, primarily to meet living expenses in the form of  salaries for business personnel. The Cash Equity Owner usually has other investments or businesses and more business experience and wants the Sweat Equity Owner to work differently and take his advice on how to get the work done more quickly so that product can get to market faster. His family (or fund investors) wants to know when they will see a return on investment.

Not to sound like a broken record on the reasons for Business Divorce, but there are some things that can be done at the onset of a relationship to avoid these dilemmas. Too often, when the relationship is formed, there is no substantive discussion of duties, timing for deliverables and exit strategy for the Cash Equity Owner. The conversations are very high level and never transcribed into a detailed agreement. One party calls cash loans while the other considers it equity.

In the last 12 months, I have encountered among other missteps: companies in which the equity was never issued despite cash being infused; standard Bylaws from companies like Legal Zoom were used, but no one ever read or understood what they meant; Articles were filed on www.Sunbiz.org indicating the names of managers, managing members, officers, owners … who were not in fact in the positions indicated and who had no authority to act on behalf of the business; domain names and other intellectual property placed in the name of one owner instead of the business …. This list is hardly exhaustive, but all have led to expensive legal battles between business partners on break-up.

When I get the call, whether as an attorney or mediator, that business partners are seeking to terminate their business relationship, the first step in my analysis is to look at the agreements between the partners.  These documents become the guide on how to proceed. If they have been carefully crafted and reflect the partners intent, often the cost to the business as well as the individuals for navigating the business divorce is emotionally and financially insignificant —- Owners typically know what to expect and time is spent implementing already agreed plans. Without these written agreements or mutual acknowledgment of intent of unwritten agreements by the Owners, the cost in the first days of efforts to separate can be thousands, and at times, tens of thousands, of dollars.

At this point you are probably thinking that I am exaggerating, but in fact, if a lawsuit needs to be filed  in order to keep the business running and make it clear who has authority to act, the effort is significant and lawyer time and cost is high. We start by preparing a complaint seeking injunctive relief and serve it with requests for admissions, production of documents and interrogatories. At times, we demand a receiver be appointed if we are representing the Cash Equity Owner and our client is not ready or able to step in and run the business. We seek emergency hearings to ensure if our client in good faith believes irreparable harm to, or waste of, business assets will occur if action is not immediate.  We often need to include third parties such as the domain hosts or banks to require them to turn over account codes and keys or to freeze assets.

Courts do not like to get involved in daily business activities and if the situation  lacks clarity, the court may appoint a receiver on its own. Domains and intellectual property will need to be be place in escrow; bank accounts will need to be frozen or unfrozen; payroll companies, customers, vendors, employees will all need to be notified as to who has authority to direct activities just to keep the business operating  and attorneys will be stepping into conversations with domain hosts, bankers, customers, vendors and employees…. all while on the clock. By the way, the Receiver will hire an attorney as well and both the receiver and attorney will also be on the clock.

Back to the Golden Rule — needless to say, the Cash Equity Owner often has the gold necessary to stay afloat while the Sweat Equity Owner does not.

Although good friends and family members make great investors because they are trustworthy, life changes and needs change over time. By having a frank conversation up-front and documenting the deal, before money is invested, much of the financial and emotional cost can be minimized on business divorce and friendships and family relations can remain favorably intact. Like a good pre-nuptial, shareholder agreements, operating agreements, and buy-sell agreements, can minimize cost in the future and avoid undue emotional harm. To me, it is well worth spending a couple hours in frank discussion and a couple thousand dollars up-front when investing in a business to avoid a later fight at ten times that expense.

At the Walk Law Firm, we regularly advise clients on these matters and encourage open discussion between owners. We can work as company counsel or as counsel to a business owner in helping businesses sort through these issues.

Credibility Education for Tampa’s Small Businesses

Summary: Tampa Bay based company creates partnership with national and local businesses to provide credit and business growth strategies for qualified small businesses.

Tampa, FL – October 1, 2013 – Nationally recognized consumer and small business finance advocate, S.E. Day will host the For Small Business Only, LLC (FSBO) Business Education seminar.  Utilizing strategic alignments with corporate creditors and vendors, the FSBO seminar will provide qualified small businesses with credit building tools that assist in establishing their business credit profiles through credit reporting bureaus including Dun & Bradstreet’s PAYDEX® score.  The seminar is a one day event and will be held on October 22, 2013 at the Steinbrenner Pavilion (across from the Bucs stadium).

“The #1 challenge faced by every small business is successfully establishing business credit without using the owner’s personal credit,” states S.E. Day, founder of FSBO and host of The Legally Steal Show hosted by S.E. Day™.  “At FSBO, we work from the top down through innovation and strategy. We have aligned with major U.S. corporate creditors to provide credit tools and accounts that assist small businesses in building business credit and establishing their PAYDEX® Score.  We are also partnering with local small business owners and thought leaders like attorney Rochelle Walk to provide education and strategies to assist the participant in growing their businesses from sustainability to profitability.”

“Our firm represents and works with many small businesses and we strongly believe that success of small business is fundamental to the success of our economy ,” states Rochelle Walk, President and Owner of Walk Law Firm, PA.  “The FSBO Event will be an opportunity to provide the participants with education  regarding legal concerns and legal planning aspects of being properly prepared to grow their businesses to the next level.”

For further information and registration about the For Small Business Only Business Education seminar, please visit the website at www.ForSmallBusinessOnly.com or call 813-379-7248.  To determine if a business qualifies for credit products through FSBO, please email Info@ForSmallBusinessOnly; or, visit LinkedIn, click on groups, and join the For Small Business Only group today and get registered.

About For Small Business Only (FSBO)
FSBO is a Florida-based company providing qualified small business owners with practical knowledge and applications specifically designed to enhance their business presence and increase their bottom line.

To qualify for credit products and trade accounts, participants with For Small Business Only, LLC must meet the following requirements: be in business for a period of one to two years; possess a current, legal business structure with their state’s Secretary of State; possess a complete business address and business telephone number (no P.O. Boxes allowed, home office addresses are acceptable); and, have an IRS issued tax ID number.

Contact

S.E. Day
The Legally Steal Show
813-379-7248 ph
FSBO@legallysteal.com
www.ForSmallBusinessOnly.com

What is a Business Divorce?

Last month, I wrote about the not so odd couple – business divorce. In continuing my educational efforts and with the hope we can help folks in business avoid some of the most difficult issues faced when breaking up with a business partner, I am continuing my blog series on Business Divorce….

Business Divorce comes in many forms but has one common characteristic — the owners are at odds, or in agreement, and want or need to attend to the separation of their business interests. The typical reasons include, but are not limited to:

  1. Generational transitions;
  2. Owners are deadlocked on a material matter preventing the business from moving forward;
  3. The owners have different visions for the future;
  4. One or more owners needs or wants to cash out;
  5. A partner has become disabled or divorces and there are no contractual provisions which are triggered;
  6. One of the owners of a business is divorcing or separating from his or her spouse or life partner, which triggers one or more clauses in governance documents of a company;
  7. An owner becomes a debtor in a bankruptcy;
  8. An owner has committed fraud or has taken corporate assets as their own without the consent of other owners;
  9. An owner manager has committed waste;
  10. An owner is no longer contributing or supporting the business as part of management or financially.

When these matters come to me as a lawyer, I still deploy my mediator skills to seek an amicable resolution whenever possible. As a mediator, I employ my extensive knowledge of business law and my creative energy to find middle ground that brings the matter to resolution. As an attorney and mediator, I look to the governing documents (Bylaws, operating agreements, partnership agreements, shareholder agreements, actions by the Board and Management …. ) and governing law to advise my clients and to navigate the often treacherous waters.

I am often surprised that lawyers and clients have failed to address some of these items up front when creating the business. My clients know that we always discuss the “Parade of Horribles” when drafting governing documents, with the hope of avoiding undue conflict at the time the business is sold or owners separate.

In future articles, I will focus on the specific concerns that arise in business divorce and ways in which owners might avoid these issues with some up front planning.

Business Divorce – The Not So Odd Couple

Recently, I added the certification of family law mediator to my already extensive list of mediation certifications to the surprise of many of my friends and associates. It should not be surprising that an attorney with an active mediation practice would mediate family law matters in addition to other business, insurance, bankruptcy, patent and intellectual property and other disputes, it’s just that my law practice has been heavily focused on business matters and it appears that I have never been engaged in the area of family law, but actually I have.

My typical practice involves representing businesses and their owners in all aspects of business life.  I have been the Chief Legal Officer and Chief Administrative Officer for public and private companies, have navigated Boards of Directors and CEOs through Chapter 11 Bankruptcies, hostile take overs, mergers, acquisitions and a variety of other crises. Sometimes those crises and matters include the addition of new owners, the separation of executives and owners, disgruntled minority owners and overcoming deadlocks. In my post “big” business life, I have started a law firm that offers the same quality and level of service provided to our nation’s biggest companies to small and middle-sized businesses on a fee structure that smaller businesses can afford. The issues are no simpler; the legal services no less complex, and the need to protect business assets, confidentiality, dignity and reputation at least as challenging.

Complicating the business of small business today is the close relationship between business partners and life partners. I am finding often that the break-up of life partners can cause mass disruption to unrelated business interests and partners, especially when there are no provisions in operating agreements or shareholders agreements covering these issues. Sometimes, life partners are business partners as well. Even without the complication of life partners, I am finding that business people go into business with others without adequate diligence and without formalizing agreements at all. In the last six months alone, I have been engaged or consulted as either a mediator or lawyer in at least a half dozen situations in which business partners are seeking a “business divorce.” And I must say, my skills and knowledge gained through family law mediation combined with my business law knowledge and acumen has come in pretty handy.

If I can help you as a mediator confidentially settle your business disputes, or help you as an attorney negotiate your deal with your partners, please contact me by completing the form below or calling our office at 813.999.0199.

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IP Basics for Start-Ups and Business

When you start a businessintellectual property protection should be a primary part of your start-up business plan.  What intellectually property (IP) has your business developed?  Why should you protect it? And, more importantly, how do you go about protecting the various types of intellectual property that your business owns?  Every business is different and will have different intellectual property considerations, so it’s important to develop a strategy on how your business intends to protect its unique inventions, innovations, and information. It is important to remember that your trade name, ideas,  concepts and customer lists are important assets of your business — assets that need protection.

 

What is your intellectual property?

Intellectual property refers to creative and innovative inventions, marks, designs, or works of authorship that you or your business independently created.  Ask yourself this question, “If you gave this product, information, or design away, could it hinder or prevent you from competing in your industry’s market; would it prevent or impact your profitability?” If the answer is yes, then it is more than likely some form of intellectual property.

 

There are several different types of intellectual property that your business should consider when taking an inventory of its IP for business planning purposes, including: (i)patents, or new or improved inventions, including products and processes; (ii)trademarks, or logos, brands, and designs; (iii) copyrights, or unique works of authorship, including software, articles, books, brochures, artwork, music, etc.; and (iv)trade secrets, or formulas, patterns, compilations used in a business to gain an economic or commercial edge over competitors.

 

In the early stages of your business plan, you should take an inventory of what types of intellectual property that your company owns and which intellectual property is worth protecting.  In other words, examine your business to see what might be eligible for intellectual property protection, including patent, trademark, copyright or trade secret protection, and determine the value that these inventions, innovations, or information provide to your business.  The state and federal protections afforded to intellectual property owners are designed to reward your creativity and provide you with an economic or commercial benefit, so take advantage of these protections.

 

Why should you protect your intellectual property?

Your intellectual property is an asset of your company just like your office, or your bank account.  In fact, depending on the size of your company, and the importance or value of the intellectual property, you can easily include your IP as an asset value on your corporate balance sheet.  Your intellectual property distinguishes you and your product or services from those of your competitors and their products and services.  Just like any other corporate asset, you need to safeguard your intellectual property.  If you fail to adequately protect and police your intellectual property, your competitors, and even worse, your own employees or contractors, can study, steal, and improve upon your product or service and run you right out of the market.

 

Also, social media has exponentially increased the speed of informational posting and exchanges.   This is important for a number of reasons – one, the simplicity of these social media outlets allows you to quickly and easily put information out there that you may have failed to adequately protect that is accessible to consumers, clients, and competitors; and two, a competitor can just as easily steal, improve, and disseminate the information, which could seriously impact the economic benefit of the intellectual property to your business.

 

Additionally, registration is sometimes a requirement for pursuing a legal remedy (e.g., copyrights), so it is extremely important to register early.  And finally, another reason why you should invest now in your IP’s adequate protections is because a lawsuit later will be far more costly than the application and registration fees and the attorneys’ fees for consultation and filing.

 

How do you protect your intellectual property?

It is extremely important to consider and build intellectual property concerns into your business plan. You should educate yourself and your team on the basics of trademarks, copyrights, patents, and trade secrets, so at the very least, you know when something has been created that has the potential to be afforded protection.  Next, you will want to register your IP, either at the state or federal level, depending on the level of protection you desire.  Because of the unique nature of your business, and because the various types of intellectual property are protected in different ways through various registration processes, it is good idea to at least consult with an intellectual property attorney who is familiar with start-up businesses and familiar with your industry.  An attorney can help you file the appropriate state or federal registration, and often such tasks can be completed on flat or capped fees.  They can also help you protect your IP while registration is pending.

You should also establish corporate policies regulating ownership of your business’s new and existing intellectual property.  Often times, it’s not a competitor stealing a business’s IP; it’s a former employee, independent contractor, or partner who undermines the business. Have your employees and contractors execute adequate protection documentation, including well-drafted non-disclosure and confidentiality agreements, employment agreements, independent contractor agreements, etc.

Finally, once you have registered your IP, you should actively police it.  Collaborate with your clients, vendors, merchants, and anybody else who helps you get your product or service into the stream of commerce and keep your eyes open for illegal duplication of your product and/or services.  It is the owner’s responsibility to police its own intellectual property and to insist on legal compliance of the respective laws, rules, and regulations when you find someone infringing upon your IP rights.

 

Florida Legislature Passes New Revised Limited Liability Company Act – Important Reading for Members and Managers of LLCs

Intro

On May 3, 2013, the Florida House of Representatives unanimously passed the new Florida Revised Limited Liability Company Act (the “New Florida LLC Act”).  The Florida Senate unanimously passed a companion bill a week earlier.  Governor Scott approved the bill without issue or opposition on June 14, 2013.  Since LLCs are the most common form of business in Florida, this article is important reading for all business owners, especially owners seeking to protect their LLC assets and personal assets as soon as 2014. The New LLC Act will be codified as Chapter 605 of the Florida Statutes and will govern limited liability companies (“LLCs”) within the state of Florida.  The New Florida LLC Act is materially different, in both form and substance, than the Existing Florida Revised Limited Liability Company Act (the “Existing Florida LLC Act”), which is codified in Chapter 608 of the Florida Statutes.  If you or your company is an existing Member or Manager of a Florida LLC, or if you plan to become one in the near future, it is extremely important to understand the New Florida LLC Act and how it may impact your existing and future operating agreements and other governance documents.   The summary below is not a comprehensive review of the new LLC Act and is not intended to replace the advice of an attorney, but rather is designed to help you assess your own LLCs and potential need to take action.

When will the New Florida LLC Act become effective?

 The New Florida LLC Act becomes effective on January 1, 2014 for all LLCs formed in Florida on or after January 1, 2014.  For all LLCs in existence prior to January 1, 2014, the New Florida LLC Act will not become effective until January 1, 2015; however, the members of an LLC may elect to have the New Florida LLC Act become effective as early as January 1, 2014. To do so, the governing documents of the LLC will need to be amended.

How will the New Florida LLC Act impact my LLC?

 The New Florida LLC Act, like the Existing Florida LLC Act, and like most business organization statutes, is a default statute, which means that it provides a set of standard rules governing LLCs and how they are organized, how they operate, and how they are governed.  These standard rules may be modified, with limited exceptions, through specific language contained in either the Articles of Organization or the LLC’s operating or management agreement.  Like all LLC statutes, the New Florida LLC Act specifically prohibits the LLC from including language that modifies or supersedes certain statutory provisions (these are often referred to as “non-waivable provisions”).  This is significant because the New Florida LLC Act expanded the number of provisions which are now,  non-waivable and may not be altered by agreement of the members.

What changes were made in the New Florida LLC Act?

Expanded Non-Waivable Provisions.  The New Florida LLC Act has clarified that an LLC’s operating agreement may not remove certain rights, obligations and authority granted by the Act. Some of the provisions which an operating agreement may not change include:

  1.  The ability of the LLC to sue and be sued in its own name
  2. The right of a member to maintain a direct cause of action against the LLC, another member, or a manager in order to enforce such member’s rights and otherwise protect such member’s interest
  3. The right of a member to maintain a derivative action
  4. The right of an LLC to refuse to relieve persons, including members and managers, from liability if such persons acted in bad faith or committed willful, or intentional misconduct or a knowing violation of the law
  5. A Member’s or Manager’s duty of care, duty of loyalty, or obligation of good faith and fair dealing The  power of a member to dissociate from the LLC
  6. Statutory requirements with respect to the  contents of a plan of merger, plan of interest exchange, plan of conversion, or plan of domestication, plan of dissolution, articles of organization, statutory agents and other similar provisions
  7. The applicable governing law of the Florida LLC

Managing Member Eliminated.  Under the Existing LLC Act, there are three potential management options:  (1) Member managed, (2) Manager managed, and (3) Managing Member managed.  The New Florida LLC Act has effectively eliminated the concept of Managing Member managed.  It is possible that your operating agreement may need to be amended in order to avoid confusion, unintended results, and unintended personal liabilities, and to make very clear which of the remaining options you intend to use for your LLC.  For example:  once the New Florida LLC Act becomes effective, for those LLCs that are Managing Member managed, the Managing Member may no longer be able to act alone and may require all authorized actions to be subject to a member vote in accordance with the operating agreement.  In order to avoid an unintended result, you should revise your operating agreement and governance documents to reflect the intent of the members.

New Statement of Authority.

The New Florida LLC Act allows an LLC to file a statement of authority with the Florida Department of State as a way of providing constructive notice to third parties regarding persons authorized to act on behalf of the LLC.  The Statement of Authority will be effective for five years from the last amended or filed Statement of Authority, unless terminated earlier in accordance with the New Florida LLC Act.  You should consult with an attorney to determine the implication of filing a Statement of Authority and whether such Statement of Authority would be beneficial for your LLC.

Other Changes.

  •  Non-US entities are now permitted to domesticate as a Florida LLC
  • Non-economic members (members that don’t or are not obligated to contribute) are now permitted
  • The new Act includes specific service of process rules for LLCs

What should I do with my existing operating agreement?  Moving forward, how will my operating agreements be different?

If you or your company are a member or manager of an existing LLC, or are planning to enter into a new LLC, you need to understand the New Florida LLC Act and all the changes that were recently made.  At minimum, you should review your operating agreement with a qualified business attorney. LLC Agreements need to reflect how the members desire to operate the business. An experienced and practical business attorney will help you navigate the new Florida LLC Act in a way to help you amend your operating agreement to be consistent with your intent and operations.

The Walk Law Firm is available to review your operating agreement and help you understand the impact the New Florida LLC Act will have on your Florida entity. Operating reviews can be handled on a Flat Fee or Fixed Fee basis.   As experienced Florida business and commercial law attorneys, we have studied the New Florida LLC Act and can work with you to revise, amend, restate and draft new provisions for your LLC management and operating agreements eliminating unintended confusion or results.